Renting may cost an extra $500,000 in retirement

Inner-city renting requires about $1 million in super, according to new analysis.

Inner-city renting requires about $1 million in super, according to new analysis. Photo: Getty

Australian couples who rent in one of the capital cities will need about half a million dollars more in savings to retire as comfortably as home owners, according to new analysis by a retirement industry body.

The Association of Superannuation Funds of Australia, which represents profit and non-profit funds, released new figures on Monday estimating that couples who rent for life in the eight capitals will need at least $1 million for a comfortable retirement.

In Sydney, a renting couple would require a lump sum at retirement of $1.16 million, almost double the $640,000 a couple who own their home debt-free would need, ASFA found.

lump sum asfaThe huge disparity is due solely to the ongoing costs of renting. For example, a 65-year-old Sydney couple who own their home will spend — if they live comfortably — about $60,000 a year, compared to almost $80,000 for a renting couple.

“Housing affordability and availability is a significant and increasing concern for many Australians and particularly impacts older Australians grappling with the private rental market,” ASFA chief executive Dr Martin Fahy said in a statement.

The figures assumed that couples enjoyed reasonable health, that a two-bedroom unit in the inner city would cost about $25,000 a year in rent, and that the couple would be living to a ‘comfortable’ standard.

ASFA defines a comfortable retirement lifestyle as enabling “an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as: household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel”.

Many Australian renters will retire far more modestly. Even so, ASFA estimated a significant financial barrier. For example, a Sydney renting couple who restrict themselves to a ‘modest’ standard of living would still need a lump sum at retirement of $450,000.

About three in four household heads aged over 65 own their home outright, while 8 per cent are paying off a mortgage and 8 per cent are privately renting, the industry body estimated.

ASFA’s Dr Fahy warned that the current level of compulsory superannuation contributions at 9.5 per cent would fall well short of what was required to support comfortable living in retirement for renters.

The analysis fits with previous research by Swinburne University’s Dr Andrea Sharam, who reported last year that Australians who don’t have a foothold in the property market by the age of 45 probably never will.

The Australian Centre for Financial Studies has also calculated that renters suffer “significant” additional expenditure in retirement than home owners.

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